Comments on introduction of bonds for public housing tenants

Wednesday, 19 October 2016

CPSA welcomes the opportunity to provide comment on the NSW Department of Family and Community Services (FACS) plans to introduce tenancy bonds for public housing tenants. This submission first identifies a number of changes that must be made to the draft policy if it is to be introduced. It then raises a number of concerns that have not been fully explored or explained in the draft policy document which CPSA was provided.

CPSA is very concerned that the policy of introducing a rental bond scheme for public housing tenants has not been subject to proper scrutiny due to the absence of public consultation. The draft framework simply outlines how the policy could be operationalised, without providing any detailed rationale to support why this particular direction has been taken. The framework states that the introduction of a rental bonds scheme will 'reinforce tenant responsibility in regard to rent arrears and tenant damage' and 'prepare tenants for private rental conditions'. Yet no evidence has been provided by FACS to indicate how the policy will achieve these objectives. Given the significance of introducing a rental bond scheme for public housing tenants, CPSA calls on FACS to halt the introduction of the policy so as to engage in a proper consultation process with affected parties.

Recommendation 1: That FACS holds off on implementing tenancy bonds for public housing so that a proper consultation with affected parties can be carried out.

Recommendation 2: That FACS release the economic modelling and research on which the decision to introduce a rental bond scheme for public housing tenants was taken.

Necessary changes

CPSA understands that the decision to introduce a rental bonds scheme for public housing tenants has already been taken, however there are a number of critical changes that must be made to reduce the negative impacts of the scheme.

The draft framework provides a list of new tenants who will be exempt from paying a bond. This includes tenants approved for Emergency Temporary Accommodation, clients approved for Recognition as a Tenant (RAAT) and Land and Housing Corporation initiated transfers. CPSA is of the view that tenants with no prospect of improving their economic circumstances through employment or otherwise, for example older tenants must also be exempt from paying a bond. Older tenants of public housing are very unlikely to transition to renting through the private market due to the shortage of affordable, accessible and secure-tenure properties. Older tenants live on a fixed income and generally higher health care expenses due to the prevalence of age-related illness and disability. Forcing tenants in these circumstances to pay a bond will push them further into financial hardship, diminishing their quality of life and capacity to live out their final years with dignity. Older people living in public housing have a reputation as responsible tenants. They generally pay their rent on time, they don't engage in anti-social behaviour and rarely cause property damage. Accordingly, CPSA views it as imperative that older public housing tenants be exempt from paying a rental bond.

Recommendation 3: that tenants who have no prospect of improving their economic circumstances through employment or otherwise be exempt from paying a rental bond.

CPSA is concerned that the draft framework does not include sufficient flexibility or local decision making capacity around the management of extenuating circumstances. The draft framework specifies that in extenuating circumstances, tenants can be granted a three month deferral from bond repayments. This can happen up to three times, meaning that in extenuating circumstances tenants can receive an exemption from making bond repayments for a maximum of nine months. It is critical that Housing NSW case workers are given the discretion to extend this deferral period beyond nine months where extenuating circumstances still exist or where they re-emerge.

Recommendation 4: That a provision is inserted into the draft framework to increase flexibility and local decision making capacity with regard to the management of extenuating circumstances.

Issues for consideration – affordability

CPSA acknowledges that the Future Directions reforms currently being rolled out by FACS aim to increase the number of positive transitions out of public and community housing and into the private rental market. The introduction of a rental bonds scheme for public housing tenants is one aspect of this broader objective. However, CPSA is concerned that the full impact of a rental bond scheme on the capacity of tenants firstly to sustain their tenancy with Housing NSW and secondly to transition out of public housing has not fully been considered.

The vast majority of public housing tenants are in receipt of a Commonwealth Social Security payment and as such live on a low fixed income. This makes it very difficult to absorb the financial burden arising from additional expenses, as would be incurred by public housing tenants who sign a new lease following the introduction of the rental bond scheme. Given that personal debt is widely regarded as one of the most significant barriers to breaking the cycle of poverty, it seems counterintuitive that a policy which is intended to help tenants transition to the private rental market works by increasing personal debt.

While the draft policy framework specifies that a tenant will not be required to spend more than 30% of their income on housing, including rental payments and bond payments, CPSA notes that this provision does not provide any meaningful assurance that the scheme will not exacerbate financial hardship. The 30% rule for housing affordability loses relevance where income is so low that it does not, or only barely covers, living expenses apart from rent. The 30% figure also fails to take into account non-rent expenses such as utilities and property maintenance costs that cannot be considered as separate from housing costs. Accordingly, the Australian Housing and Urban Research Institute (AHURI) has indicated that alternative measures of housing affordability, which take into consideration a person's other necessary expenses, tend to show a greater proportion of people on a low income as experiencing housing stress [1].

If the introduction of a rental bonds scheme is to work to increase the number of positive exits from public housing, Housing NSW must consider the affordability of bond payments within the broader context of a tenant's necessary living expenses. This must include any mandatory debt repayments. CPSA notes that the standard rate of repayment for Centrelink debts is 15% of income. For example, a person on Newstart Allowance who is spending 30% of their income on rent and bond payments, plus 15% of their income towards repaying a Centrelink debt, will be left with less than $150 per week to cover all other costs of living, including utilities, transport, food, telecommunications, health care costs and more. Expenses such as new clothes, shoes, a haircut and even an internet connection, all of which are important for getting jobseekers into employment, are likely to be the first things cut from one's personal budget when such financial pressures are imposed. Accordingly, CPSA views it as critical that Housing NSW broadens its definition of affordability to mitigate the risk of public housing tenants entering financial hardship, which ultimately limits the chance of a positive exit from public housing.

Recommendation 5: That Housing NSW considers the affordability of bond repayments within the broader context of a tenant's necessary living expenses, including outstanding debts.

CPSA is concerned that the rental bonds scheme framework put forward by Housing NSW is inequitable in that bonds are calculated according to market rent, rather than the actual amount of rent being paid by the tenant. The cost of renting through the private market varies hugely between rural, regional and metropolitan areas of NSW [2]. CPSA is of the view that rental bonds should be calculated according to the actual rent payable by public housing tenants, rather than market rent. CPSA seeks further clarification regarding the calculation of market rent and whether or not tenants will be given the opportunity to dispute Housing NSW's determination of market rent.

Recommendation 6: That Housing NSW addresses the inequity of a rental bond scheme that is calculated according to market rent rather than the actual amount of rent payable, as market rent varies significantly across NSW.

Issues for consideration – administrative

CPSA understands that the introduction of a rental bonds scheme for public housing tenants is in part intended to recoup the costs incurred by Housing NSW through tenant damages and arrears. It is important that Housing NSW considers the actual proportion of public housing tenants that do incur significant debt either through property damage or arrears. CPSA's experience in providing support to public housing tenants indicates that the vast majority of tenants do pay their rent on time and do maintain the property to a reasonable standard. The problem is that those who are unable to sustain a public housing tenancy tend to 'fail spectacularly', as a representative from one community housing provider has indicated. Those few tenants who do enter arrears or cause property damage end up owing Housing NSW a far greater amount than a bond would ever cover.

CPSA has heard that this particular issue – the small proportion of tenants who generate substantial arrears/damage costs – has prompted a number of community housing providers to review their policies around charging a bond. These providers have identified that existing rental bond schemes are not meeting the objective of covering the costs of tenant damages and arrears and that the costs of administering bond schemes are too significant. Accordingly, CPSA calls on Housing NSW to very carefully consider on balance the costs of administering the rental bonds scheme, the proportion of public housing tenants who cause damage or enter arrears, and the income likely to be generated through a rental bond scheme. CPSA notes that Housing NSW will not be able to collect any more than $1,400 from any one household, but that the costs of damage or arrears generally far exceed that amount. Further, the management of arrears by Housing NSW has been identified as an ongoing issue, with reports of the Department failing to take action until arrears reach thousands of dollars. CPSA highlights that an early intervention approach to managing arrears is more likely to recoup losses than introducing a rental bonds scheme without resolving this issue.

Recommendation 7: That Housing NSW considers the administrative costs of introducing and operating a rental bond scheme for public tenants with reference to the proportion of tenants who cause damage or enter arrears and the costs incurred where damage or arrears occur.

CPSA notes that there are ongoing issues in relation to Housing NSW failing to fulfil their obligations as a landlord. There is a serious need to resolve these issues prior to the introduction of a rental bond scheme for public housing tenants. The property management services provided by Housing NSW, in particular the completion of condition reports at the commencement of a tenancy and end-of-lease inspections must be significantly improved. If Housing NSW is planning to deduct costs associated with property damage from bonds, then there must be a detailed record of the property's original state, in the form of a detailed condition report. As it stands, CPSA understands that Housing NSW is not completing these reports with enough detail and that as a result, tenants are being expected to cover property damage that was already present.

CPSA and other community organisations working in the housing sector have identified serious deficiencies in Housing NSW's understanding of fair wear and tear and end-of-lease damage reports generally. Where damage is present, Housing NSW automatically assumes it has been caused by the tenant and initiates a debt recovery process. CPSA has heard of instances where a property has been vandalised after the tenant has vacated and returned the keys, but Housing NSW has laid blame for damage on the tenant. Further, there have been cases where Housing NSW has failed to carry out routine maintenance and repairs, resulting in property damage, which has in turn been blamed on the tenant. CPSA also notes ongoing issues in the area of property damage incurred as a result of domestic violence. While the draft framework indicates that the victims of domestic violence will not be liable for damage caused by perpetrators, there is no elaboration on how this will work in practice, given that Housing NSW regularly fails to manage property damage in accordance with residential tenancy legislation. There is a serious need for staff training in relation to carrying out inspections, responsibility for property damage and the meaning of fair wear and tear. It is completely unacceptable that public housing tenants are blamed and financially penalised for Housing NSW's deficiencies in property management.

The draft framework specifies that where Housing NSW believes a deduction from a tenant's bond is warranted, the Department will lodge a claim with NSW Fair Trading. Tenants will then have to initiate proceedings with the Tribunal in order to challenge this. This requires the tenant to not only pay an application fee, but to enter into legal proceedings against the Government. CPSA has serious concerns regarding the capacity and likelihood of public housing tenants pursuing justice through the tribunal and is worried that in the vast majority of cases tenants will simply accept Housing NSW's claim against their bond. Vulnerable public housing tenants are likely to have lower levels of legal literacy than the general population, which further entrenches the unequal distribution of power between Housing NSW and public housing tenants. CPSA is concerned that justice will not prevail as public housing tenants will most likely be too intimidated to enter legal proceedings against Housing NSW. It is critical that Housing NSW provides a referral for free legal support and advocacy through tenants' advice and advocacy services to any tenant whose bond is subject to a claim.

Recommendation 9: That Housing NSW provides tenants with a referral for free legal support and advocacy through tenants' advice and advocacy services where they lodge a claim against the bond with NSW Fair Trading.

Housing NSW and the NSW Government more broadly must ensure that public housing tenants have access to justice, as well as impartial advocacy and advice. Tenants' advice and advocacy services in NSW are funded through a proportion of the interest generated from rental bonds held by the NSW Department of Fair Trading. The amount of funding allocated to tenants' advice and advocacy services has not increased in real terms over the last 12 years, despite a significant increase in the number of renters. This has necessitated the closure of specialised advocacy services, such as the Older Persons Tenants' Service. The introduction of a rental bond scheme for public housing tenants will lead to increased demand for tenants' advice and advocacy services and more resources will be required to meet new demand. Given this, CPSA is very concerned about the proposal to amend the Residential Tenancies Act 2010 to allow Housing NSW to use the interest accrued on bonds to 'ensure the ongoing financial sustainability of social housing'. CPSA is not convinced that the Department has considered the potential outcomes of amending the legislation and is concerned about Housing NSW's unwillingness to provide further details to the public regarding the nature of potential changes.

CPSA highlights that section 186(3) of the Residential Tenancies Act 2010 stipulates that the interest generated through tenants' bonds can be used for:

establishing and administering tenancy advisory services,

schemes for the provision of residential accommodation,

education about tenancy laws and the rights and obligations of landlords and tenants,

research into matters relevant to the relationship of landlord and tenant,

other activities for the benefit of landlords and tenants.

Accordingly, CPSA questions the need for legislative changes to enable Housing NSW to use the interest accrued on bonds. There is nothing within the Act that would stop the NSW Government from allocating additional funds to Housing NSW for the administration of the rental bonds scheme. However, CPSA highlights that this essentially amounts to taking tenants money to cover the costs of taking tenants money, which is clearly redundant. Given the substantial power imbalance between tenants and Housing NSW raised earlier in this submission, it is critical that any interest generated from the bonds of public housing tenants is allocated to tenants' and advice and advocacy services.

Recommendation 10: That the Residential Tenancies Act 2010 remain in its current form, without any legislative amendments to the use of interest accrued on bonds.

Recommendation 11: That the interest generated through public housing tenants' bonds must be allocated to tenants and advice and advocacy services.